PRIVATE PLACEMENT OF SHARES- Key Changes – Companies Amendment Bill, 2017

PRIVATE
PLACEMENT OF SHARES- Key Changes
– Companies Amendment Bill, 2017
This is article no. 304 Dated 04.01.2018 of the series of editorials written by the
author on corporate laws {Including Companies Act, 2013, SEBI, RBI Regulations,
IBC, LLP Act, 2008 etc.}.
INTRODUCTION:
A business
cannot run without funds. In case of an incorporated company, initial capital
always comes from subscribers to the memorandum. After that company can raise
funds by Loans/borrowings or issue of further securities.
To issue
further shares there are following ways: (i) Right Issue of Shares (ii) Private
Placement of Shares (iii) Preferential Allotment of Shares. In this editorial author shall talk about the
provisions of Private Placement of
Shares after Amendment in Companies Act, 2013.
MEANING: "private
placement" means any offer or invitation to subscribe or issue of
securities to a [1]select
group of persons by a company (other than by way of public offer) through
private placement offer-cum-application, which satisfies the conditions
specified in this section 42 read with rules.
CONDITIONS FOR PRIVATE PLACEMENT OF ISSUE OF SHARES
1. Maximum No. of persons to whom offer can be made:
·
An offer can’t be made under a Private
Placement Offer Letter to more than 200 people in a financial year.
·
The 200 people
limit excludes Qualified Institutional Buyers and Employees and the limit of
200 people is calculated individually for each kind of security.
·
Offer shall be made
only to selected group of person identified by the Board of Directors.
2.
Condition for Private Placement
Offer Letter:
Company shall
made offer in prescribed form to identified persons. Name and address of the
persons shall be record by the Company in prescribed manner.
3.
Right of Renunciation:
The Private
Placement offer shall not carry any renunciation right. Only the person in
whose name offer letter issued can apply for the subscription.
4.
Modes for Payment of Subscription
Money:
Subscription
money shall be paid either by cheque or demand draft or other banking channel
or not by cash. Shares under Private Placement can’t be subscribed by payment
in cash.
5. Use of Allotment Money:
A company
shall not utilize monies raised through private placement unless allotment is
made and the return of allotment (i.e. e-form PAS-3) is filed with the
Registrar in accordance with sub-section (8).
This is major change by Amendment Act, 2017.
After amendment without filing of e-form PAS-3 for allotment of Shares Company
can’t use the funds received from subscription.
6.
No further offer till completion of
earlier offer: No offer or
invitation of security shall be made unless allotments with respect to offer or
invitation made earlier in respect of any other kind of security in completed.
7.
Separate Bank Account:
The money so received shall be kept in a separate bank account of the
company and
utilized only for allotment (or repayment).
8.
Persons to whom offer will make:
All
offers shall be made only to those persons whose names are recorded by the
company prior to the invitation to subscribe. Allotments can be made only to
such persons addressed specifically to the persons whom the offer is made along
with the Offer letter.
9. No advertisement of offer:
No company offering securities
under this section shall release any public advertisements or utilize any
media, marketing or distribution channels or agents to inform the public at
large about such an offer.
10. Days in which share should be issued:
Allotment has to be carried out within 60 days
of receiving of money.
11. If not allotted within 60 days:
If allotment is not made within 60 days then till
75th day the monies have to be repaid. Failure to repay has a liability of interest
at 12% pa.
12. Minimum gap between two offers.
There is no condition in the Act or rule
regarding minimum gap between two offers. A company can come with new offer
after completion of earlier offer.
13. Maximum no. of offers in a Financial year:
There is no condition in the Act or rule
regarding maximum Number of Private Placement offers in a financial year.
According to this company can come with private placement offer in a financial
year any no. of times. But remember an offer can’t be made more than 200
peoples in a financial year.
In the Section
42 of Companies Amendment Bill, 2017 more than 6 places mentioned that “as
may be prescribed”. Therefore, Central Government may amend the rules in
respect of Private Placement of Shares.
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
[1]
Selected Group of Person indicate while offering
the shares Company shall decide the name of person to whom share shall be
issue.
can unsecured loan received earlier can be adjusted with private placement of shares?
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